Use ingenuity and your own resources to finance your business without debt.
By Kim Deveney

Entrepreneurs should not overlook bootstrap financing techniques before jumping into debt to raise money—whether their business is a start-up or an existing business that is expanding.
In business, bootstrapping means finding ways to finance your business yourself, without seeking outside financial assistance. Several bootstrap financing options are relatively inexpensive or free. Others are creative and allow you to put your assets to work for your business.

Office at Home
Operating your business from a home office, basement or garage could save a lot of money. It eliminates expensive rent and additional overhead; plus, you could be eligible for various tax deductions. This is especially cost effective in the early stages of a new business.

Accept Credit Cards
Accepting credit cards is an excellent way to improve cash flow and reduce the risk of bad debts–and, it’s a great benefit to your customers. In addition, customers sometimes buy more when paying with credit or debit cards as compared with cash. This option could improve cash flow and increase sales volume.

Customers
Your customers are valuable resources in many ways aside from the obvious. It is very common to ask customers or clients for a deposit, to charge retainers or require down payments to cover your out-of-pocket costs. Other ideas include selling memberships, subscriptions or gift certificates to get paid upfront.

Offer Discounts
Offer your customers a discount for quick payment. Review your profit margin and consider how much you are willing to discount your service or product for quick payment. The most common example is a 1-2 percent discount for payment within 10 to 15 days. This is an excellent way to improve cash flow and is a great benefit to your customers.

Barter
Exchange your goods or services with other businesses. For example, an accountant could prepare the year-end tax return for an IT business in exchange for a new Web site. Both businesses are trading their expertise without incurring out-of-pocket expense. Bartering is one of the oldest forms of commerce and is still a viable option in today’s marketplace.

Suppliers
Ask your suppliers for 30 to 60 day terms. They may be hesitant if you are a new business owner, until you have built a good payment history. If so, work hard to build a relationship and ask for terms after 6-12 months. If you currently have terms, ask for more competitive rates based on your creditworthiness. Many suppliers are agreeable to terms if you have a valid purchase order or contract ensuring payment within the terms.

Factoring
You can improve cash flow by selling your accounts receivable to a finance company, commonly know as a “factor.” Factoring companies will buy your receivables at a slight discount, providing your company with immediate cash. This option can be effective for businesses that have to wait 30, 45 or even 60 days for customer payment, but are concerned with payroll demands, taxes and other monthly expenses. With access to immediate cash, you can take advantage of supplier cash discounts, which will offset the cost of factoring.

As a new business owner, your supplier may require cash upon delivery. Many factoring companies offer a vendor assurance program. The factor will pay your supplier directly on your behalf, once you have delivered the product or service. As an added benefit, the factor can often help negotiate favorable terms with your vendor, which can offset the cost of financing.

Leasing
Free up cash by leasing equipment instead of buying it outright. Most leases provide 100 percent financing and allow you to roll in additional costs, such as installation, warranties, taxes and so on.

Close or Consolidate Locations
Have the demographics of the neighborhood changed, resulting in decreased sales? With more people everyday shopping online, it may be more profitable to eliminate a bricks-and-mortar site and increase your Web presence. Consider the savings from closing a physical location that is experiencing decreased foot traffic and increasing your Internet traffic.

Home Equity Loans
Homes equity lines of credit, second mortgages or cash-out refinances are relatively easy to qualify for, and the rates are often more competitive than traditional business loans. The disadvantage is that your home is used for collateral. If you are unable to repay the loan, you are putting your home at risk. Always get the support of your spouse or significant other before considering this financing option.

Bootstrap financing requires creativity and good financial management of your business. These techniques can help generate funds to start a business or grow an existing business without incurring unnecessary debt or racking up credit cards. Besides being one of the most inexpensive ways to grow your business, bootstrap financing also looks good to outside investors and lenders. Your business becomes more valuable because there is not a lot of debt and no ownership or equity has been given up.

Kim Deveney with The Factoring Alliance LLC, which provides factoring, purchase order funding, and various other working capital finance options to small businesses. You can reach her at (888) 493-3666 or kim@thefactoringalliance.com.